“By imposing a 10-year waiting period on alterations to non-conforming units where property owners have exercised their Ellis Act rights, the ordinance penalizes property owners who leave the rental market. The ordinance does not regulate the particulars of the remodeling of a nonconforming unit, but rather prohibits any such changes for a period of 10 years after the property owner exits the rental business. By imposing such a prohibition on property owners who have left the rental market, the ordinance challenged here improperly enters the field of substantive eviction controls over such property owners.”

In SPOSFI v. CCSF (2018), the Small Property Owners of San Francisco challenged San Francisco Ordinance 286-13. Prior to that ordinance, Section 181 of the Planning Code prohibited the “enlargement, alteration or reconstruction” of nonconforming units. (These are legally constructed units in buildings that were “down-zoned” after the fact. As this is essentially a “math” problem, a property owner would designate the particular unit in the property that gets the “nonconforming” designation.)

SocketSite doesn’t express an opinion on the cause for the trend (at least until you get to the comment’s section). However, a recent decline in breach/nuisance evictions may be attributable to the 2015 Jane Kim Amendment (which heightened both the pleading standard and the substantive threshold for a landlord to prevail here). The recent decline in OMI/RMI evictions may be because of the uncertainty of the “educator” amendment or the more stringent enforcement of fraudulent owner move-in evictions. Ellis Act evictions may be up in recent years (compared to 2013) following a dip during the uncertainty created by the “Campos I” and “Campos II” enhanced relocation assistance payment legislation.

Today, the Second District Court of Appeal published its decision in City of West Hollywood v. Kihagi, interpreting Ellis Act re-rental constraints and their application in the context of settlement agreements.

Infamous landlord Anne Kihagi tested the limits of Ellis Act re-rental constraints, as illustrated in the latest appellate decision chronicling her exploits, City of West Hollywood v. Kihagi. While withdrawing an 8-unit, rent controlled property in West Hollywood from the rental market, Kihagi harassed one of the tenants, prompting the City of West Hollywood to prosecute, leading to a settlement agreement governing the application of the Ellis Act.

For purposes of the Ellis Act, the property featured several “classes” of rental units: four were unoccupied, four were occupied, and one of the occupied units claimed an extension of the withdrawal date (as tenants who are disabled or at least 62 are entitled to do). The Ellis Act uses a floating definition for the “date of withdrawal”, which could be as early as the landlord files the notice of intent or as late as the extended termination of tenancy. Further, while the Ellis Act imposes vacancy control constraints for five years and requires a “first right of refusal” for ten, these restrictions do not appear to apply to rental units that are unoccupied at the time of withdrawal. (For those, arguably only a two year re-rental restriction applies – or perhaps even no restrictions at all.)

Despite entering a settlement agreement with potentially more restrictive terms, Kihagi re-rented units after the five-year vacancy control restrictions would have expired under the Ellis Act. The Court of Appeal first noted that landlords’ agreements to waive rights under the Ellis Act are void, citing Embassy LLC v. City of Santa Monica (2010) 185 Cal.App.4th 771, 777, but ultimately determined that Kihagi had re-rented outside of the Ellis Act constraints.

The San Francisco Chronicle reports on the Campos enhanced relocation payment “law die[d] quietly” last week. The “law” in question was actually a pair of efforts in 2014 and 2015, introduced by then-Supervisor Campos, which would increase the relocation assistance payment owed to tenants to be displaced by the Ellis Act, from an inflation-adjusted payment (roughly equal to first and last month’s rent and deposit for a replacement apartment) to a 24-month rent subsidy, compensating for the difference between the displaced tenant’s former rent-controlled rate and fair market value.

The 2014 ordinance was essentially a blank check, where the rent differential could easily reach six figures per unit. Property owners quickly challenged Ordinance 54-14 in both state court (Jacoby v. CCSF) and federal court (Levin v. CCSF). Each court determined that Ordinance 54-14 was invalid. However, the court in Jacoby found that the payment was not “reasonable” under the existing standard for mitigation payments (set forth in Pieri v. City & Cty. of San Francisco (2006) 137 Cal. App. 4th 886), while the Levin court made a determination on constitutional takings grounds, finding the payment was an “exaction” unrelated to the owner’s choice to exit the residential rental market. (It found that the adverse impacts that the payment sought to alleviate were not caused by the landlord’s choice to use the Ellis Act, but by “market forces unrelated to the impact of the property owner’s use of the property”.)

San Francisco tried to institute enhanced mitigation payments again in 2015, with Ordinance 68-15. The second ordinance grafted itself onto the first one (creating some confusion about how and when it was to be applied), capping the payment at $50,000 per unit and providing an administrative review process for landlords who could not afford the increased payment. Again, property owners challenged the ordinance as conflicting with the Ellis Act.

The trial court in Coyne v. CCSF found that the changes did not solve the preemption problems, and reached the same conclusion. The First District Court of Appeal later reviewed Jacoby and Coyne together, finding that the enhanced mitigation payment ordinance imposed a “prohibitive price” on a property owner’s ability to exit the residential rental market, in the published opinion Coyne v. City & Cty. of San Francisco (2017) 9 Cal. App. 5th 1215.

The City (as well as amicus curiae) sought a depublication order from the Supreme Court of California, urging that Coyne v. CCSF created a new preemption standard and, by referencing Levin, improperly extended exactions takings jurisprudence. However, in a unanimous ruling, the Supreme Court denied the requests to depublish and further declined to review the matter on its own motion.

The First District Court of Appeal recently vindicated a landlord’s efforts to terminate a tenancy pursuant to the Ellis Act, where both the Trial Court and the Appellate Division found the notice of termination of tenancy invalid, as the landlord paid only the adults and not the child who occupied the unit. That case, Danger Panda v. Launiu interpreted the term “tenant” in the section of the Rent Ordinance requiring relocation payments to “tenants”, determining that this was a term of art with a specific import: “Construing section 37.2(t) according to its plain language, a tenant is a person who is entitled to occupy a residential unit (1) to the exclusion of all others and (2) pursuant to a written agreement; oral agreement; sub tenancy approved by the landlord; or sufferance.” The Court noted, however, that it was only interpreting that term, not considering whether the Board of Supervisors had the authority to confer a relocation benefit on a child.

Supervisor Ronen picked up this cue, introducing Ordinance 123-17, which requires payment to every “Eligible Tenant”, defined as “each authorized occupant of the rental unit regardless of the occupant’s age”. Danger Panda resolved the uncertainty in whether minors were entitled to Ellis Act relocation assistance payments (as they are for other non-fault evictions under the Rent Ordinance). Interestingly, Ordinance 123-17 may resolve further uncertainty about whether a landlord is required to pay persons with whom she has no privity, but who nonetheless occupy a rental unit.

“Insisting that a ‘tenant’s child may be a tenant protected under the Rent Ordinance,’ defendants direct our attention to Mosser Companies v. San Francisco Rent Stabilization & Arbitration Bd. (2015) 233 Cal.App.4th 505 (Mosser Companies) and T & A Drolapas & Sons, LP v. San Francisco Residential Rent Stabilization & Arbitration Bd. (2015) 238 Cal.App.4th 646 (Drolapas) . . . Defendants mistakenly rely on Mosser Companies and Drolapas. The primary issue in both of these cases was how to interpret statutory language in the Costa-Hawkins Act, specifically, the words ‘occupant’ and ‘possession’ in Civil Code section 1954.53(d)(2). (Mosser Companies, supra, 233 Cal.App.4th at pp. 512-513; Drolapas, supra, 238 Cal.App.4th at pp. 652-653.) The present case does not involve a proposed rent increase under the Costa-Hawkins Act. Beyond that, the question we address is not whether David is an occupant or in possession of Unit 308A. The issue here is whether David’s status as a minor precludes him from being a ‘tenant’ for all purposes under section 37.2(t) of the Rent Ordinance.”

WeHoVille.com reports that infamous landlord Anne Kihagi has been ordered to jail for five days for violating an injunction in a case by a former tenant of one of her West Hollywood apartments, who is suing her for violating the Ellis Act. The former tenant’s lawsuit alleges that she violated the Ellis Act by re-renting the property.

The Ellis Act – which allows property owners to terminate tenancies in a building by “going out business” – actually does permit re-renting under certain circumstances (like offering the unit to the displaced tenant at the rent-controlled rental rate). However, re-rental within two years may subject the landlord to prosecution by the city and liability to the tenant.

“We conclude the prohibitive price standard is the appropriate standard to determine conflict preemption under the Ellis Act. It is the measure appellate courts consistently adopt to determine if a challenged ordinance contradicts the state law.”

Today, Division Five of the First District Court of Appeal affirmed Judge Quidachay of the San Francisco Housing Court, who previously held that San Francisco’s enhanced relocation assistance payment ordinance was not a “reasonable” means of mitigating the impact of tenant displacement by the Ellis Act. In 2015, plaintiffs, including individual landlords and the Small Property Owners of San Francisco, argued in Coyne v. CCSF that an enhanced relocation assistance payment regime was preempted by the Ellis Act. The payment amounted to a subsidy of a tenant’s new rent for two years after displacement under the Ellis Act.

Division Five affirmed the ruling, but determined that the correct standard was whether a local ordinance places a “prohibitive price” on a landlord’s ability to exit the rental market. “Like provisions in past City-enacted ordinances which have been invalidated, the City’s Rental Payment Differential obligation places conditions on a landlord’s right to go out of business that are not found in the Ellis Act. The Ellis Act contains no requirement that obliges a landlord to pay their former tenants future rental subsidies so that they can leave the residential rental business.” Division Five agreed with its colleagues in Division Three, which recently applied the “prohibitive price” standard to invalidate San Francisco’s prohibition on the merger of rental units for 10 years after an owner has invoked the Ellis Act.

This week, Assembly Members Chiu and Bloom introduced AB 982, an amendment to Section 7060.4 of the Ellis Act, dictating that, when a property is withdrawn from the residential rental market under the Ellis Act, the termination date of all tenancies is one year from the date of filing the “notice of intent to withdraw” with the city.

Currently, the default withdrawal date is 120 days, and qualified tenants may claim an extension to a full year if they are at least 62 years old or are disabled. The amendment would simply eliminate the “qualified claim” requirement, providing one-years’ notice for all occupants.

If the amendment passes, this would be the second time the withdrawal date has been changed since the Ellis Act was enacted in 1986. Originally, the Ellis Act provided for 60 days’ notice of termination, in line with the maximum period of notice of termination for periodic residential leases under state law.

Effective January 1, 2000, SB 948 (1999) required 120 days’ notice, unless a qualified tenant claimed an extension, in which case the property owner had to comply with additional conditions for withdrawal of the property, including the extension of the withdrawal date to a full one-year for rental units with a qualified tenant.This amendment would essentially restore the original text, without the conditions and the variable withdrawal date.

The logic of this amendment is somewhat opaque, given that the class of tenants that would be protected is the one that is per se less susceptible to the adverse impacts of displacement (as they are neither disabled nor elderly). Time will tell whether Assembly Members Chiu and Bloom find the political will for this amendment.

Residential Rent and Eviction Control Resources

Justin A. Goodman, Esq.415.956.8100

Costa-Hawkins.com is a product of Justin A. Goodman, esq. of Zacks, Freedman & Patterson, P.C., in San Francisco, California. This site is not intended to provide legal advice. It is not affiliated with any government agency.